In the event of a transfer of undertaking, such as a merger or acquisition, employees automatically transfer to the new employer under section 7:663 of the Dutch Civil Code. Existing rights and obligations under the employment contracts remain in force, subject to a few exceptions. But what if the employees of the acquired undertaking receive higher salaries than similar staff at the acquiring entity? Is the new employer allowed to compensate for this discrepancy by granting a temporary allowance, which is later phased out? This question was recently addressed by the District Court of Limburg. In this article, we explore the implications of this decision for both employers and employees.
What were the facts of the case?
Between 1981 and 1993, four employees (the claimants in this case) entered into employment with the legal predecessor of Volta Limburg B.V. ("Volta"). In 1996 and 1999, Volta acquired the businesses at which these employees were employed. Upon transfer, the employees were assigned to roles with lower salary grades than they had previously held. To compensate, Volta awarded each of them a personal allowance, maintaining their overall pay level.
For many years, these employees received annual pay increases under the applicable collective agreement, applied to their basic salary and the personal allowance. However, in 2022, Volta undertook a restructuring of its pay structure. The pay of the employees concerned was effectively frozen and the personal allowance would be gradually phased out. Only the basic salary would continue to increase in line with the collective agreement, up to the maximum point on the pay scale. Volta asserted that this measure was necessary in order to achieve pay equality across the organisation. The employees disagreed and started legal proceedings.
The court’s decision
The court found that Volta had effectively divided the employees’ pay into a basic salary and a personal allowance subject to reduction. In doing so, Volta had unlawfully altered the composition of the employees’ pay, which is contrary to mandatory law governing transfers of undertakings. According to established European case law, particularly the Watson Rask and Daddy’s Dance Hall rulings, it is impermissible to amend the pay structure, even where the total amount of pay remains unchanged.
The court further held that not only had the pay structure been altered, but the overall terms and conditions of employment had been worsened. The phasing out of the allowance would not have occurred had the employees remained with their original employer. Such detriments may not be imposed where they are directly connected to the transfer of the undertaking.
Can employment conditions never be amended following a transfer of undertaking?
Terms and conditions of employment may be amended under certain conditions, provided there is a legal basis for doing so. Under Dutch law, this may occur through a unilateral change clause pursuant to section 7:613 of the Dutch Civil Code or on the basis of the principle of good employment practice under section 7:611. However, a key limitation is that the change must not be related to the transfer itself. If it is, the change of employment conditions contravenes mandatory provisions safeguarding employees.
In the present case, there was no unilateral change clause nor could the change be justified under the principle of good employment practice. As the amendment was directly related to the transfer of undertaking, the court held it to be unlawful under the statutory protection afforded to employees.
The court concluded that the employees’ pay must be fully indexed in line with the collective agreement, both the fixed salary and the personal allowance. Volta was ordered to pay the shortfall in wages with retroactive effect.
Read the full judgement here.
Conclusion
This decision underscores the importance of employers acting with utmost care when altering employment conditions following a transfer of undertaking. Any attempt to harmonise or vary pay structures must be strictly compliant with employee protection legislation. Seeking legal advice is strongly recommended when contemplating such significant changes.
For employees, it is essential to be aware of their rights upon the transfer of undertaking and to remain alert to any changes that may contravene the law.
Would you like to know more about the amendment of employment conditions following a transfer of undertaking? Or do you have other questions regarding employment or company law? The specialists at SPEE advocaten & mediation are happy to assist you.